At least one of the coal plants for which Poland is requesting €7 billion of free carbon allowances under the EU Emissions Trading System (ETS)'s little-known '10c derogation' does not exist, a EurActiv investigation has found.

Poland has applied for €33-million worth of free allowances for the Łęczna coal plant, near the Ukrainian border, but there is no visible evidence that any construction work has begun at the sleepy greenfield site.

Chris Davies, the Liberal Democrat MEP and environment spokesman, said he was "outraged" at the lack of work at Łęczna. "The dirty tricks brigade is out and there's an attempt to cheat the system," he told EurActiv.

"I think there will be enormous anger if the European Commission finds ways of stretching or re-interpreting the rules to accommodate Poland," he added.

Under EU rules, exemptions from the ETS until 2020 can only be granted to power plants if their investment process was "physically initiated" before 31 December 2008, and if their greenhouse gas permits were issued before 30 June 2011.

A Polish government official told EurActiv that the Łęczna coal plant fell into a category of sites for which "construction is in progress", even if the work was not completed.

But a 20 kilometre drive around the backwaters of Łęczna's Stara Wieś-Stasin site on 5 July revealed a rural landscape of green fields, crop allotments, and country paths.

No buildings, installations or other power plant-related activity were evident at the coordinates for the installation submitted by the GDF Suez group to the regional authorities in June 2011.

"It's not certain if there will be a plant," one local farmer at the site told EurActiv. "We are still working the land like normal."

He and another farmer were growing maize on the site, where the two 800 megawatt installations were to be built.

Legal challenge

The environmental group Client Earth, which is challenging the legality of the Łęczna plant and 12 others, says that the Polish authorities did not even apply for building permits at sites such as Łęczna before the December 2008 deadline.

EurActiv has also seen photos of the Północ installation, for which Poland is claiming €98.3 million of free carbon allowances, taken in November 2010. They too show empty fields with no apparent installations or other construction works.

"When you see an empty field without any other works there, it is obvious that the process was not physically initiated by the cut-off date three years ago, and the Polish application is not valid," said Marcin Stoczkiewicz, a lawyer for Client Earth.

"The law has been broken," he added.

One well-placed source at the Polish environment ministry said that the government could not check all 187 '10c' installation venues, and that if the European Commission ruled that some companies had breached the application rules, Warsaw would accept it.

Poland's list of proposed power plants had been compiled without checking the eligibility criteria, the source added.

Officials from Warsaw's environment and economics ministries were unable to comment directly on the situation at Łęczna but the Polish environment spokeswoman, Magda Sikorska, did add one caveat.

"The 10c [derogation] is not [being] used as a negotiation tool in any other field of European policy," she said.

10c derogation intent

When the EU adopted the climate and energy package in December 2008, the 10c derogation was included as an exception to the rule that from 2013 onwards, all allowances for power companies should be auctioned rather than granted for free.

Power plants that were physically planned and initiated before 2009 could be eligible for allowances, it said, so long as the resulting funds were used to modernise, diversify, and clean up electricity generation.

Applicant states just had to issue greenhouse gas permits to such installations before a 30 June 2011 deadline, to prevent an open-ended stream of central and east European coal plants gaining free allocations that could distort the European power market.

Exchange of letters

However, the Polish authorities appeared to misunderstand this point, according to an exchange of letters between the EU's then-environment commissioner Stavros Dimas and Poland's economics minister Waldemar Pawlak, which EurActiv has seen.

In a missive dated 11 March 2009, Pawlak complained of "contradictory wording" in the ETS and requested an amendment to it, which would extend the free allocations of carbon allowances for 10c applicants.

Commissioner Dimas replied that as the legislation had already passed into law, "it is no longer possible to make any changes to the wording of the legislation".

Poland's subsequent transposition of the ETS into national law in June 2011 contained an Article 50, authorising 'greenhouse gas permits' without CO2 emissions rights to be issued, in stark contradiction to the EU's rules.

Such permits could apply to 10c installations which had not been built, like Łęczna.

"The European Commission must shine a light on the Polish government's fraudulent implementation of the ETS directive," said Julia Michalak, a policy officer for Climate Action Network Europe, an environmental NGO.

Krysztof Bolesta, the advisor to Poland's environment minister, Martin Korolec, told EurActiv that Warsaw would continue to veto any solely European 2050 targets because "we need a policy that protects industry".

"If it's a global [CO2 reductions] deal or a carbon tax at the [EU] borders, both solutions are fine," he said.

On the 10c issue, Polish officials stress that all monies raised through the derogation will be reinvested in new coal plants that deliver a substantial claimed CO2 saving on the installations they are replacing.